Bankruptcy FAQs

Bankruptcy is a possible route for anyone who cannot pay their unsecured debts as and when they are due. All included debts will be written off once the bankruptcy is discharged, usually after 12 months. Any interest and charges on your debts are frozen during the bankruptcy.

Bankruptcy can help those struggling with their debts; however, it may not be an ideal option for everyone. Bankruptcy may be suitable for you if all of the following apply:

• you are unable to pay your debts as they fall due
• you do not own any valuable assets and there is little or no equity in your home
• it is unlikely that your situation will improve

There is no minimum amount of debt you need to be eligible. If the value of your debt outweighs the value of your assets, then bankruptcy may be worth considering.

If you own your home and there is equity in it, it may be sold, with the proceeds used to pay your creditors. This rule applies whether your home is freehold or leasehold, solely or jointly owned, mortgaged or otherwise.

You must not attempt to dispose of your property or sell it for a below market value price, to avoid the property being surrendered to the Official Receiver.

If you rent your home, you are unlikely to lose it unless your tenancy agreement says that you cannot rent the property if you’re bankrupt. You may find it harder to find a new home to rent.

Generally, you do not have to tell your employer if you go bankrupt. However, you should check the terms of your contract of employment carefully to see if it covers this scenario. This situation is particularly likely to apply to you if you work in a financial organisation.

In most cases, going bankrupt should not affect your employment. However, this is not always the case and there may be issues if one of the following applies to you:

• you are employed in a role that involves financial matters, such as working in a bank, and your employer is unwilling to carry on employing you because of your bankruptcy.
• you are employed in certain regulated professions that require you to be licensed or registered and going bankrupt would disqualify you as a member of your professional body. This applies to some professions like law, accountancy, financial services and banking — if you’re unsure whether this would apply to you, you should check directly with your professional body.
• you are an insolvency practitioner — you would be banned from working in the role when declared bankrupt.
• You are a director of a limited company — you cannot continue as a director whilst you are bankrupt.
• you are licensed to carry out a specified role in the gambling industry, such as a dealer or croupier — your licence will automatically lapse when you become bankrupt. However, you may be able to reapply to the Gambling Commission.

If you are self-employed as a sole trader, you can keep trading if you are bankrupt. It is worth remembering that you will find it difficult to get credit, which may make it challenging for you to carry on trading.

Going bankrupt will also place certain restrictions on the involvement you can have in running a business. If you break any of these restrictions, you will be committing a criminal offence. They include:

• you cannot be a company director without permission from the court
• you cannot be involved in setting up, promoting or managing a limited company without consent from the court
• you can be self-employed or trade in a partnership, but if you run a business under a name that is different to the one in which you were made bankrupt, you must tell everyone you do business with the name under which you were made bankrupt.

When the bankruptcy order is made, you must:

• make sure you don’t use your bank account
• give your cards and cheque books to the trustee

Your bank account will be frozen. Any money in your account will be an asset and claimed by the trustee. The trustee can ask to release some money:

• for your daily living needs
• to the other person in a joint account

The bank is allowed to use money from one of your accounts to pay your debts on another account you hold with them. This term is called ‘set off’.

Otherwise, money owed to the bank (e.g., if you’re overdrawn) is a bankruptcy debt, so you can’t pay this to the bank directly. The exception is if the bank has a charge on your home (such as security for payment of a mortgage loan).

You can open a new bank account after the date of the bankruptcy order but you must tell the bank or building society that you’re bankrupt. Some banks will let you use your old account after they’ve spoken to the trustee.

Most pension schemes aren’t included in your bankruptcy, and the trustee can’t claim them. Your trustee cannot force you to draw down on your pension.

For a pension to be exempt, it must be a UK state pension scheme or a scheme approved or registered by HM Revenue & Customs. Approved or registered pension schemes are usually:

• occupational (employers) pension schemes approved for tax purposes
• personal pensions approved for tax purposes
• stakeholder pensions
• retirement annuity contracts
• If your pension scheme is not an approved or registered scheme you may be able to exclude it from your bankruptcy by making an application to the court or making an agreement with your trustee.

If you receive pension income, it can be used to make ongoing payments to your creditors as an Income Payment Agreement (IPA) or Income Payment Order (IPO).

Bankruptcy is also known as sequestration in Scotland and is the legal process by which you are formally declared insolvent. Which means you can’t pay your debts as they become due.

To be declared bankrupt in Scotland, you must show you have:

• debts over £1,500
• lived in Scotland during the last year or currently live in Scotland
• not been declared bankrupt (sequestrated) in the previous five years

For more information on sequestration, please visit https://www.mygov.scot/bankruptcy/overview

Ironically, going bankrupt is not cheap and there are some costs involved should you wish to apply for bankruptcy.

England and Wales
If you apply for bankruptcy, you will need to pay the following costs:

• adjudicator fee of £130
• a deposit of £550

Which means you’ll need to be able to pay £680 in England and Wales if you want to go bankrupt. However, if you apply online, there is an option to pay this bankruptcy fee through instalments. You won’t be able to progress with your application until the payment has been made in full.

Northern Ireland
If you live in Northern Ireland and wish to apply for bankruptcy, you will need to pay the following costs.

• the court fee is £151,
• the bankruptcy deposit is £683, and
• there is a fee of £7 payable to a solicitor before whom you swear the contents of your statement of affairs.

Which means you will need to pay £669. If you live in Northern Ireland and you‘re on a low income or receive certain benefits, the court may waive the fee. Whatever your circumstances the bankruptcy deposit is always payable.

Scotland
If you live in Scotland and apply for sequestration, the Accountant in Bankruptcy fee is £150. There are no exemptions or restrictions to this, so the total fee amount needs to be paid in full.

If you qualify and apply for a Minimal Assets Process (MAP) bankruptcy, there is a £50 application fee, again with no exemptions.

In Scotland, the Accountant in Bankruptcy may order you to make a payment each month for up to four years after sequestration. This is called a ‘debtors contribution order’ and is based on your ability to pay. You won’t be asked to pay anything under a MAP bankruptcy.

You can apply for bankruptcy online. The application form needs to be completed in full and fees (outlined above) are payable before the application can progress.

Suppose you have decided after weighing up your options that bankruptcy is the right solution for you. In that case, you will need to have to hand information about your financial circumstances to complete the application form, which includes:

• information about you and any businesses you run
• declarations about your eligibility for bankruptcy based on where you live or carry out business
• details of any previous bankruptcies you’ve been granted in the last five years
• details of any other insolvency procedures you’ve been through.

You can access the form from the GOV.UK website.

When you become bankrupt, the Official Receiver plays an important role in your bankruptcy. Their job is to take control of some of your property and assess whether you can afford to make any payments towards your debts. They will investigate your conduct and financial affairs before and during the bankruptcy, which may include asking you to attend an interview, complete a questionnaire or attend a public examination.

The Official Receiver also informs your creditors of your bankruptcy and in some cases, is responsible for distributing your property and money among your creditors.

The Official Receiver may pass your case to an Insolvency Practitioner who will be appointed as Trustee, to oversee your bankruptcy. It is crucial to cooperate with the Official Receiver and the Trustee if one is appointed.

When you go bankrupt, the Official Receiver, or Trustee if one is appointed, will investigate your financial behaviour, both before the bankruptcy order was made and while it is in force and determine whether you have committed a bankruptcy offence.

There are lots of different kinds of bankruptcy offences, but the important thing to know is that they count as a criminal offence. Examples of bankruptcy offences include:

• lying or failing to mention relevant information about your finances or property in your bankruptcy application, during the bankruptcy interview or any other time you make a statement about your financial situation
• hiding details of your property from the bankruptcy trustee
• hiding any belongings worth £500 or more, which should be handed over to the official receiver or trustee
• giving away or selling property for less than the property value during the five years before you were made bankrupt
• carrying on a business under a different name from the one in which you were declared bankrupt
• holding certain jobs or positions without the court’s permission, such as a company director
• breaking any of the other restrictions that are placed on you during the bankruptcy period

If you commit a bankruptcy offence, this counts as a criminal offence. The courts could punish you with:

• a fine and/or
• being sent to prison for up to seven years.
• You may also have a bankruptcy restrictions order made against you, extending the period during which you have to follow certain restrictions for anything up to 15 years.

After a year of being bankrupt, you’ll usually be automatically discharged from your bankruptcy, releasing you from any debts covered by your bankruptcy. It also takes away the restrictions of bankruptcy, unless a bankruptcy restrictions order or bankruptcy restrictions undertaking has been made.

Your bankruptcy will appear on your credit report for six years, or until you’re discharged if this takes longer.